Muck's Model

Recommended Posts

For the record, we're pretty much at the level at which if we finish above it, we'll be in cash for the coming week and if we finish below it, we'll be long a +1 for the coming week.

Can you clarify? What's the level? I'm assuming price level? For instance, the Dow is currently down ~100 points as of this writing (price is 11,950). Are you saying if the Dow ends lower (i.e. price drops below 11,950) you will be a +1 (long) for the week and vice versa?

Share this post

Link to post

Share on other sites

As opposed to what? Staying in cash even though a buy signal was triggered?

Emotional overrides on quantitative strategies is rarely a good idea. I am long for the coming week.

I 100% Agree on the bolded and didn't mean to imply otherwise. I guess I'm just sorta shocked that you had a price level so specific that a close above or below that level, no matter how small the variance, would trigger an action. It's also interesting that your signal was inverse of the day's action. I can see the logic on why, just interesting.

Share this post

Link to post

Share on other sites

I 100% Agree on the bolded and didn't mean to imply otherwise. I guess I'm just sorta shocked that you had a price level so specific that a close above or below that level, no matter how small the variance, would trigger an action.

You can't have a quantitative strategy without threshholds for implementing and closing positions.

I'm not sure I understand your dual position of (i) being surprised at having a specific threshhold, and (ii) being a fan of eliminating emotional decision-making overrides in quantitative strategies?

It's also interesting that your signal was inverse of the day's action. I can see the logic on why, just interesting.

While I've never actually counted them, I wouldn't be surprised if I had more than 100 different inputs. When added up and analyzed, this week, the tipping point came from hitting a particular price (or lower). Next week, the tipping point could be a function of what bond yields did. Oh, and remember that I look at weekly stuff ... not so much what happened on any particular day.

Share this post

Link to post

Share on other sites

Just performed a bit of analysis on the signals that I found interesting...

Over the 1406 historical weeks I've analyzed (going back to July of 1984), the distribution of weekly returns for the S&P500 is as follows:

< -5% = 1.7% of all weeks (i.e., about once a year, you'd see a week where the market drops -5% or more)

-2.5% to -5% = 7.1% of all weeks (i.e., about 3-4 weeks a year, you'd see a week where the market drops -2.5% to -5%)

-1% to -2.5% = 17.1% of all weeks (i.e., about 8-9 weeks a year, you'd see a week where the market drops -1% to -2.5%)

-1% to +1% = 39.3% of all weeks (i.e., about 20-21 weeks a year, you'd see the market stay within 1% of flat)

+1% to +2.5% = 23.5% of all weeks (i.e., about 12-13 weeks a year, you'd see the market go up +1% to +2.5%)

+2.5% to +5% = 9.4% of all weeks (i.e, about 4-5 weeks a year, you'd see the market go up +2.5% to +5%)

> +5% = 1.8% of all weeks (i.e, about once a year, you'd see a week where the market goes up more than 5%)

**********************************

Interesting analysis:

For weeks scoring "-1" --

< -5% = 5.5% of all weeks

-2.5% to -5% = 15.9% of all weeks

-1% to -2.5% = 22.0% of all weeks

-1% to +1% = 36.0% of all weeks

+1% to +2.5% = 12.2% of all weeks

+2.5% to +5% = 7.9% of all weeks

> +5% = 0.6% of all weeks

For weeks scoring "0" --

< -5% = 1.2% of all weeks

-2.5% to -5% = 6.5% of all weeks

-1% to -2.5% = 18.7% of all weeks

-1% to +1% = 43.3% of all weeks

+1% to +2.5% = 22.1% of all weeks

+2.5% to +5% = 6.7% of all weeks

> +5% = 1.5% of all weeks

For weeks scoring "+1" --

< -5% = 1.7% of all weeks

-2.5% to -5% = 6.4% of all weeks

-1% to -2.5% = 14.6% of all weeks

-1% to +1% = 34.7% of all weeks

+1% to +2.5% = 27.7% of all weeks

+2.5% to +5% = 12.2% of all weeks

> +5% = 2.6% of all weeks

For weeks scoring "+2" --

< -5% = 0.0% of all weeks

-2.5% to -5% = 1.8% of all weeks

-1% to -2.5% = 14.3% of all weeks

-1% to +1% = 33.9% of all weeks

+1% to +2.5% = 35.7% of all weeks

+2.5% to +5% = 10.7% of all weeks

> +5% = 3.6% of all weeks

For weeks scoring "+3" --

< -5% = 0.0% of all weeks

-2.5% to -5% = 3.5% of all weeks

-1% to -2.5% = 9.6% of all weeks

-1% to +1% = 34.8% of all weeks

+1% to +2.5% = 30.4% of all weeks

+2.5% to +5% = 19.1% of all weeks

> +5% = 2.6% of all weeks

***************************

Said another way:

If the model said to go short, the market dropped in excess of -1% 43.3% of the time (compared to 26.0% of the time for all weeks, regardless of signal). So, you'd have been more than 50% more likely to have a losing week on weeks the signal is "-1" than on average.

If the model said to go short, the market dropped in excess of -2.5% 21.4% of the time (compared to 8.8% of the time for all weeks, regardless of signal). So, you'd have been nearly 2.5x more likely to see a really big move down on weeks the signal is "-1" than on average.

If the model said to buy (i.e., +1, +2 or +3), the market went up at least 1% 45.5% of the time (compared to 34.8% of the time for all weeks, regardless of signal). So, you'd have been almost 1/3 more likely to see a nice upswing in the market on those weeks than otherwise.

If the model said to buy, the market went up in excess of +2.5% 16.3% of the time (compared to 11.2% of the time for all weeks, regardless of signal). So, you'd have been almost 50% more likely to see a really big upswing in the market on those weeks than otherwise.

And if the model said to buy on leverage (i.e., +2 or +3), the results were even more pronounced (i.e., up at least 1% 51.5% of the time (vs. 34.8% in all weeks) and to be up at least 2.5% 19.3% of the time (vs. 11.2% in all weeks)).

Share this post

Link to post

Share on other sites

Huh. And here am I finally thinking of throwing in the towel and heading for cash across all funds.

Two things to remember:

1) my models are not right 100% of the time.

2) my models tend to get "in" then "out" then "in" then "out" then "short" then "in" then "short" then "out" ... etc ... so, the signal is only for the coming week, and not for the coming month / quarter / year.

As we get closer to the close today, I'll let everyone know if it's going to be a "+3" or not. For now, assume it'll be a "+1" as that's more likely than not.

Share this post

Link to post

Share on other sites

Huh. And here am I finally thinking of throwing in the towel and heading for cash across all funds.

I did that to mine last night. Gonna wait a month or two and see how things sort it out. I don't want to take another 50% nosedive like I did last time. Just in case the 2 parties can't get together and master the obvious.

Share this post

Link to post

Share on other sites

2) my models tend to get "in" then "out" then "in" then "out" then "short" then "in" then "short" then "out" ... etc ... so, the signal is only for the coming week, and not for the coming month / quarter / year.

As we get closer to the close today, I'll let everyone know if it's going to be a "+3" or not. For now, assume it'll be a "+1" as that's more likely than not.

I'm not sure if your model accounts for options expiration Fridays but that's today, fyi. My point is that today's market move is probably more based on options expiration, meaning more manipulation and volatility.

Share this post

Link to post

Share on other sites

I'm not sure if your model accounts for options expiration Fridays but that's today, fyi. My point is that today's market move is probably more based on options expiration, meaning more manipulation and volatility.

It makes no special adjustment for certain calendar events (holidays, expiration date, etc).

Share this post

Link to post

Share on other sites

You just know once they get this debt ceiling raised the markets will rally. It's such a B.S. dog & pony show they're putting on. They won't default and everyone knows it. And when it gets passed, the market manipulators will rally this thing to a new high (probably).